DCIT, New Delhi V. M/s. Xchanging Technology Services India Pvt. Ltd., New Delhi

ITA 121/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4172 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 07-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Period of limitation; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I - 2 BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER, AND S HRI SUCHITRA KAMBLE , JUDICIAL MEMBER ITA NO. 121 /DEL/20 1 5 [A.Y 20 1 0 - 1 1 ] THE DY . C. I.T VS. M/S EXCHANGING TECHNOLOGY SERVICES CIRCLE - 27(2) INDIA LTD, RECTANGLE 1, D - 4, NEW DELHI DISTRICT CENTRE, SAKET, NEW DELHI PAN : A A BCR 5609 L [APPELLANT] [RESPONDENT] DATE OF HEARING : 0 2 . 0 8 .201 8 DATE OF PRONOUNCEMENT : 20 .0 8 .2018 ASSESSEE BY : SHRI NAGESHWAR RAO , ADV REVENUE BY : S HRI H.K. CHOUDHARY , CIT - DR ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER : - THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE DRP - II , NEW DELHI DATED 05 . 11.2014 FRAMED U/S 144C (5) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] PERTAINING TO A.Y 201 0 - 1 1 . 2 2. THE SHORT GRIEVANCE OF THE REVENUE IS THA T THE DRP ERRED IN DIRECTING TO REDUCE/DELETE THE ADDITION/DISALLOWANCE OF RS. 1,80,44,570/ - ON ACCOUNT OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION RELATED TO PROVISION OF I.T. SERVICES. 3. AT THE VERY OUTSET, THE LD. AR POINTED OUT THAT THE GRIEVA NCE RAISED BY THE REVENUE IS NEITHER HERE NOR THERE AS IT IS NOT COMING OUT FROM THE GROUND WHY THE REVENUE IS AGGRIEVED BECAUSE THE AMOUNT MENTI O NED IN THE GROUND OF APPEAL IS NOT COMING OUT ANYWHERE FROM THE ORDER OF THE DRP. 4. PER CONTRA, THE LD. DR S OUGHT TIME FOR REVISING THE GROUND OF APPEAL. 5. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE POINTS RAISED BY THE LD. AR. WE HAVE CAREFULLY PERUSED THE ORDER OF THE DRP. WE FIND FORCE IN THE CONTENTION OF THE LD. AR. THE GRIEVANCE OF THE REVENUE IS N EITHER HERE NOR THERE. HOWEVER, IN OUR CONSIDERED OPINION, IF THE REVENUE IS ALLOWED TO FILE A NEW GROUND OF APPEAL AFTER THREE YEARS OF FILING OF APPEAL, IT WOULD TANTAMOUNT TO INCREASING THE PERIOD OF LIMITATION FOR FILING THE APPEAL. IN OUR CONSIDERED OPINION, GROUNDS ARE 3 ALLOWED TO BE REVISED ONLY WHEN THERE IS A TYPOGRAPHICAL MISTAKE. GROUNDS CANNOT BE REVISED TO CHANGE THE ENTIRE SUBJECT MATTER OF THE APPEAL. 6. BE THAT AS IT MAY, THE FACTS ON RECORD SHOW THAT THE ASSESSEE IS IN THE BUSINESS OF PROVIDING SUB - CONTRACTED SOFTWARE DEVELOPMENT AND I.T. ENABLED SERVICES TO ITS GROUP COMPANIES. THE ASSESSEE IS ORGANISED INTO TWO SEGMENTS VIZ. , IT AND ITES. THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE AS UNDER: NATURE OF INTERNATIONAL TRANSACTION METHOD SELECTED AMOUNT (IN INR) PROVISION OF SOFTWARE DEVELOPMENT SERVICES TNMM 33,51,58,548 PROVISION OF IT ENABLED SERVICES TNMM 40,02,92,121 AVAILING OF SERVICES TNMM 3,04,87,786 PURCHASE OF FIXED ASSETS TNMM 10,95,335 PAYMENT OF COST RECHARGES CUP 63,26,746 RECEIPTS OF COST REIMBURSEMENTS TNMM 1,28,73,606 7. THE TPO EXAMINED THE PROVISIONS OF I.T ENABLED SERVICES BY COMPARABLES USED BY THE ASSESSEE VIS A VIS THE COMPARABLES USED BY THE TPO HIMSELF AND FINALLY CONCLUDED BY USING THE FOLLOWING COMPARABLES FOR THIS SEGMENT : 4 S. NO. COMPANY NAME ADJUSTED OP/OC (%) 1 ACCENTIA TECHNOLOGIES LTD. 40.20 2 COSMIC GLOBAL LTD. 20.29 3 E4E HEALTHCARE 31.55 4 FORTUNE INFOTECH LTD. 21.38 5 L - GATE GLOBAL LTD 24.09 6 INFOSYS B P O LTD. 30.17 7 JINDAL INTELLICOM LTD. 14.95 8 OMEGA HEALTHCARE 13.11 9 T C S E - SERVE INTERNATIONAL LTD. 55.43 10 T C S E - SERVE LTD. 65.27 AVERAGE 31.81 8. ACCORDINGLY, THE ARMS LENGTH OF THE INTERNATIONAL TRANSACTION RELATED TO PROVISION OF I.T. ENABLES SERVICES WAS COMPUTED AS UNDER: OPERATING COST(A) 32,03,40,125 ARMS LENGTH MARGIN (%) 31.81% MARGIN (B) 10,19,00,194 ARMS LENGTH PRICE(A+B)=C 42,22,40,319 PRICE CHARGED BY THE ASSESSEE(D) 40,02,92,121 PROPOSED ADJUSTMENT 2,19,48,198 9. THE TPO FURTHER EXAMINED THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND AFTER CONSIDERING THE COMPARABLES USED BY THE ASSESSEE VIS A VIS THE COMPARABLES USED BY THE TPO HIMSELF, THE FOLLOWING SET OF COMPARABLE WERE USED BY THE TPO : 5 S. NO. COMPANY NAM E OP/OC (%) ADJUSTED OP/OC (%) 1 AKSHAY SOFTWARE TECHNOLOGIES LTD. - 1.04 - 0.42 2 CAT TECHNOLOGIES LTD. 11.48 4.49 3 E - LNFOCHIPS BANGALORE LTD. 72.69 65.99 4 EVOKE TECHNOLOGIES PVT. LTD. 19.02 19.67 5 E - ZEST SOLUTIONS LTD. 18.66 16.36 6 INFINITE DATA SYSTEMS PVT. LTD. 84.65 84.65 7 INFOSYS LTD. 45.08 46.41 8 KULIZA TECH. 18.85 17.66 9 LARSEN & TOUBRO INFOTECH LTD. 20.48 20.97 10 LGS GLOBAL LTD. 12.79 8.36 11 MAVERIC SYSTEMS LTD. 16.17 15.68 12 MINDTREE LTD. 16.62 15.46 13 PERSISTENT SYSTEMS LTD. 30.50 28.80 14 SASKEN COMMUNICATION TECHNOLOGY LTD. 17.54 18.87 15 TATA ELXSI LTD. 19.82 17.98 16 THINKSOFT GLOBAL SERVICES LTD. 17.35 14.55 17 THIRDWARE SOLUTION LTD 41.63 38.98 18 WIPRO TECHNOLOGY SERVICES LTD. 70.60 70.60 AVERAGE 29.96 28.06 10. ACCORDINGLY , THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATED TO PROVISION OF I.T. SERVICES WAS COMPUTED AS UNDER: TOTAL COST RS. 29,02,24,261/ - AR,S LENGTH PRICE AT A MARGIN OF 28.06% RS. 37,16,60,657/ - PRICE RECEIVED RS. 33,51,58,550/ - PROPOSED ADJUSTMENT U/S 92CA RS. 3,65,02,107/ - 6 11. AND FINALLY THE CUMULATIVE ADJUSTMENTS WERE DETERMINED AS UNDER: NATURE OF INTERNATIONAL TRANSACTION ALP DETERMINED BY THE ASSESSEE (INR) ALP DETERMINED BY TPO (INR) DIFFERENCE (IN R) PROVISION OF IT ENABLED SERVICES 40,02,92,121 42,22,40,319 2,19,48,198 PROVISION OF SOFTWARE DEVELOPMENT SERVICES 33,51,58,550 37,16,60,657 3 , 65,02,107 TOTAL ADJUSTMENT U/S 92CA 5,84,50,305 12. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP AND STRONGLY SUPPORTED THE COMPARABLES USED BY IT. IT WAS BROUGHT TO THE NOTICE OF T HE DRP THAT THE WORKING OF THE MARGINS COMPUTED BY THE TPO WAS ERRONEOUS AND FURNISHED THE TABLE CONTAIN ING WORKING OF THE MARGINS OF THE COMPARABLES AS UNDER: S. NO. COMPANY NAME ADJUSTED OP/OC (%) 1 ACCENTIA TECHNOLOGIES LIMITED 40.20 2 COSMIC GLOBAL LIMITED 20.29 3 E4E HEALTHCARE 31.55 4 FORTUNE INFOTECH LIMITED 21.38 5 L - GATE GLOBAL LIMITED 24.09 6 INFOSYS BPO LIMITED 30.17 7 JINDAL INTELLICOM LIMITED 14.95 8 OMEGA HEALTHCARE 13.11 9 T C S E - SERVE INTERNATIONAL LIMITED 55.43 10. T C S E - SERVE LIMITED 65.27 AVERA GE 31.64 7 13. AFTER CONSIDERING THE FACTS AND DETAILED SUBMISSIONS, THE DRP OBSERVED AS UNDER: TPO HAS NOT GIVEN THE DETAILS OF THE COMPUTATION OF THE MARGINS OF THESE COMPARABLE USED IN THE TP ORDER. THERE ARE MINOR VARIATIONS IN THE CALCULATION. AS PER THE TPO, THE MARGIN IS ARRIVED AT 31.81%. THEREFORE, TPO IS DIRECTED C HECK THE MARGINS OF THE COMPARABLES GIVEN BY THE ASSESSEE AND ACCEPT THE CORRECT MARGIN FOR THE DETERMINATION OF ALP. 14. IN THE I.T. ENABLES SERVICES SEGMENT, THE DRP DIRECTED FOR EXCLUSION OF E - INFOCH IPS BANGALORE LTD AND INFINITE D ATA SYSTEM PVT. LTD FROM THE FINAL SET OF COMPARABLES. 15. I N OUR UNDERSTANDING OF THE FACTS, THE GRIEVANCE OF THE REVENUE SHOULD HAVE BEEN RELATED TO THE EXCLUSION OF THESE TWO COMPARABLES ONLY. 16. IN SO FAR AS E - INFOCHIPS BANGALORE LTD IS CONCERNED, THIS COMPANY IS PRIMA RILY ENGAGED IN SOFTWARE DEVELOPMENT AND ITES. THIS COMPANY IS A PARTNER OF CHOICE OF FORTUNE 500 COMPANIES FOR PRODUCT INNOVATION AND HI - TECH ENGINEERING CONSULTING AND HAS PROVIDE D SOLUTIONS TO KEY 8 VERTICALS LIKE AEROSPACE & DEFENSE, CONSUMER ELECTRONIC S, ENERGY AND UTILITIES , HEALTHCARE, HOME, OFFICE AND INDUSTRIAL AUTOMATION, MEDIA AND BROADCAST, MEDICAL DEVICES, RETAIL AND E - COMMERCE, SECURITY AND SURVEILLANCE, SEMICONDUCTOR, SOFTWARE/LSV AND STORAGE AND COMPUTER COVERING EVERY ASPECT OF THE PRODUCT L IFE - CYCLE. THIS COMPANY IS ALSO INTO BOARD DESIGNS. FROM A CAREFUL PERUSAL OF THE PROFIT OF THIS COMPANY, WE FIND THAT THIS COMPANY IS EQUIPPED TO CARRY OUT HIGH - END TECHNOLOGY DRIVEN SERVICES AND PRODUCT DEVELOPMENT WHICH IS NOT THE PROFILE OF THE ASSE SSEE. THIS COMPANY HAS BEEN RIGHTLY EXCLUDED FROM THE FINAL SET OF COMPARABLES BY THE DRP. HENCE NO INTERFERENCE IS CALLED FOR. 17. COMING TO INFINITE DATA SYSTEMS PRIVATE LIMITED, THIS COMPANY IS WHOLLY OWNED SUBSIDIARY OF INFINITE COMPUTER SOLUTIONS [INDIA] LIMITED AND PROVIDES SOLUTIONS THAT ENCOMPASS TECHNICAL CONSULTING, DESIGN AND DEVELOPMENT OF SOFTWARE, MAINTENANCE SYSTEMS INTEGRATION, IMPLEMENTATION, TESTING AND INFRASTRUCTURE MANAGEMENT SERVICES. THIS COMPANYS REVENUE IS PRIMARILY DERIVED FR OM TECHNICAL SUPPORT AND INFRASTRUCTURE MANAGEMENT SERVICES. WE FIND THAT THE DRP HAS CONSIDERED THE INFORMATION AVAILABLE IN PUBLIC DOMAIN OF THIS COMPANY AS IT DOES NOT HAVE ANY WEBSITE. THE DRP OBSERVED THAT THIS COMPANY 9 HAS AMALGAMATED WITH M/S INFIN ITE INFOSOFT SERVICES PRIVATE LIMITED AND WITH INFINITE COMPUTER SOLUTIONS [INDIA] LIMITED. THE DRP FURTHER OBSERVED THAT IT IS NOT KNOWN WHICH OF THE ACTIVITIES APPEARING ON THE WEBSITE ARE IN RESPECT OF THE COMPARABLE M/S INFINITE DATE SYSTEMS PVT LTD . AND WHICH OTHERS PERTAIN TO OTHER AMALGAMATING COMPANIES. FURTHER, THIS COMPANY IS RENDERING TECHNICAL CONSULTING, DESIGN & DEVELOPMENT OF SOFTWARE, MAINTENANCE, SYSTEMS INTEGRATION, IMPLEMENTATION, TESTING AND INFRASTRUCTURE MANAGEMENT SERVICES. HOWEVER , THE ASSESSEE IS RENDERING SERVICES LIKE E - BUSINESS & WEB, APPLICATION SERVICES, MOBILE & PDA, BUSINESS INTELLIGENCE AND REPORTING, SYSTEMS INTEGRATION, I.T. INFRASTRU C TURE, PRODU C T RELATED CUSTOMER RELATIONSHIP MANAGEMENT & TELEPHONY SERVICES. IT CAN BE SAFELY CONCLUDED THAT THE BUSINESS PROFILE OF THE INFINITE DATA SYSTEMS PRIVATE LIMITED DOES NOT MATCH WITH THAT OF THE ASSESSEE. THEREFORE , THE DRP HAS RIGHTLY EXCLUDED THIS COMPANY FROM THE FINAL SET OF COMPARABLES. NO INTERFERENCE IS CALLED FOR. 18. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE DRP. GROUND RAISED BY THE REVENUE IS DISMISSED. 10 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO. 121/DEL/2015 IS DISMISSED. ORD ER PRONOUNC ED IN THE OPEN COURT ON 2 0 T H AUGUST , 2018. SD/ - SD/ - [ SUCHITRA KAMBLE ] [ N.K. BILLAIYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 0 T H AUGUST , 2018 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 11 D ATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER